June 09, 2006
Corporate Shenanigans: Companies Dis Shareowners at Annual Meetings
by Bill Baue
Home Depot exemplifies a phenomenon of companies manipulating annual meeting protocols to
disempower shareowners, following in the footsteps of Weyerhaeuser, Whole Foods, and others.
The Home Depot (ticker: HD) annual meeting late last month
is widely regarded as a nadir in corporate treatment of investors, as the company displayed its
contempt for its shareowners with no-show directors, questions truncated by a one-minute timer, and
vote results unannounced. The fact that the company subsequently promised to reform its
behavior next year goes little way toward repairing its damaged reputation.
this case is an anomaly, according to Charles Elson, director of the University of Delaware Center for Corporate
Governance, it is unfortunately not a completely isolated event. In fact, it closely follows
the scripting last year by Weyerhaeuser (WY), which stifled shareowners'
freedom of expression by requiring written questions (widely viewed as a censoring mechanism), then
apologized a few days after
the annual meeting--and after the damage was done.
"I think it's quite arrogant,
frankly--it's disrespectful to investors," Prof. Elson told SocialFunds.com. "I don't take much
stock in apologies, as actions speak louder than words--the fact that Home Depot shut out
questions, that the directors didn't bother to show up--the company effectively limited their
shareholders' ability to legitimately question management."
Tracey Rembert, coordinator of
investor and corporate engagement for the Service Employees International Union (SEIU) Capital Stewardship Program, has been tracking such instances
of corporate misbehavior throughout her career of shareowner activism.
"It isn't so much a
widespread pattern as a see-saw effect," Ms. Rembert told SocialFunds.com. "It tends to coincide
with the defensiveness of executives who are already being targeted for particular issues."
At Weyerhaeuser, the target was poor environmental stewardship. At Home Depot, it's excessive
executive pay, especially for CEO Bob Nardelli, who raked in $245 million since his December 2000
appointment while overseeing a stock slide of 12 percent as competitor Lowe's (LOW) stock price rose 173 percent.
"It is surprising that such shenanigans still happen at large companies
post-Sarbanes-Oxley and the river of scandals--companies should be on better behavior, not worse,"
Ms. Rembert added.
Longtime shareowner activist Tim Smith, president of the Social
Investment Forum (SIF), concurs.
"On the day that the Enron verdict was delivered, common sense would have dictated that Home
Depot's directors should have been present and accounted for, ready to answer questions and engage
with their shareowners," Mr. Smith told SocialFunds.com, referring to the jury finding Ken Lay and
Jeffrey Skilling guilty of defrauding investors.
Mr. Smith is also senior vice president
of socially responsible investing (SRI) firm Walden Asset Management, which filed a shareowner
resolution asking the company to disclose workforce diversity data that received strong support of
36 percent. Shareowner dissatisfaction over executive compensation and company unresponsiveness
even before the annual meeting fueled high votes for most of the resolutions. Four resolutions
received more than 40 percent support, and a resolution seeking majority vote director elections
received 56 percent support, prompting a company vow to implement the measure.
shouldn't lose sight of the fact that the real issue at Home Depot is the composition of the board
and the compensation committee, and the way they lavished pay and benefits on Nardelli that wasn't
deserved," said Rich Ferlauto, director of pension and benefit policy for the American Federation
of State, County, and Municipal Employees (AFSCME). In protest over executive compensation,
AFSCME campaigned to
withhold votes from 10 of 11 directors, all of whom ended up receiving over 30 percent withhold
votes. "Its clear shareholders understand this game and have had enough, so this kind of
manipulation of annual meetings won't be tolerated anymore."
"I think the Home Depot board
did what most other boards would like to do, though other boards know better than to be so
transparent in their disdain for shareholders," Mr. Ferlauto told SocialFunds.com. "Home Depot
probably weighed this out beforehand: 'Either we'll take some heat for running the meeting this
way, or we'll take more heat in the meeting, but because we have something to hide, it's worth it
to us to take the heat afterwards.'"
Nell Minow, co-founder of The Corporate Library (TCL), joins Ms. Rembert, Mr. Smith,
and Prof. Elson in pointing out that SEC regulations are essentially mum on annual meeting
"It's largely a matter of state law," Ms. Minow told SocialFunds.com. "What
redress is there--are shareholders going to make companies have their meetings over again?"
The one provision clearly stipulated by the SEC is that shareowners who file resolutions must
present them at the meeting--which of course means that companies must allow this. Earlier this
year, Whole Foods (WFMI) set a low-water mark by
contravening this SEC mandate, disallowing investors from even presenting their resolutions before
closing the vote.
Unfortunately, Home Depot, Weyerhaeuser, and Whole Foods are not alone
in these antics.
"Two years ago, Target [TGT] said that the annual meeting
was not the time or place for shareholder questions," Ms. Minow said. "That's like in the movie
Love and Death when Woody Allen and Diane Keaton are in bed and he leans over to kiss her
and she says, 'Please, not here.'"
Eerily, Mr. Nardelli's words echo Target's: "This is
not the forum in which we would address your comment," he told a shareowner who asked what he would
do to increase director independence. Even the length of the Target and Home Depot meetings in
question coincided: a mere half-hour! And Ms. Rembert points out that Target also stifled
questions from social activists and labor funds.
Likewise with Coca-Cola (KO) this year,
according to Scott Klinger, research director at Corporate Accountability International.
"When we arrived at the annual meeting, shareholders who came in person were given red cards,
while attendees representing shareholders were given yellow cards," Mr. Klinger told
SocialFunds.com. "Unlike past meetings where anyone who wants to speak can line up at a microphone
and wait their turn, this year shareholders had to raise their colored cards and remain seated to
await recognition by CEO Isdell."
"When the controversial resolution addressing labor
abuses in Colombia came up, Isdell ignored a sea of waving yellow cards--he only recognized
individuals who were in some way funded by Coca-Cola, to offer testimonials about what a fine
company Coke was," Mr. Klinger continued. "Instead of shareholders discussing one of the issues
that most threatens the company's reputation, we witnessed a clamp-down on democratic discussion,
undermining shareholders ability to hold the corporation accountable."